Wednesday 3 October 2012 10.37 EDT
First published on Wednesday 3 October 2012 10.37 EDT

It was an idea that first emerged at the end of the heyday of cyber-utopianism: Bitcoin, the virtual and universal currency that could be exchanged for goods and services online, the brainchild of a mysterious pseudonymous cryptographer.

Since its formal launch in 2009, Bitcoin has been adopted by a variety of organisations, including WikiLeaks, the Electronic Frontier Freedom Foundation (albeit briefly) and a number of online traders.

But others, too, saw its unique advantages – including criminals who have allegedly used it for money-laundering. More recently a Bitcoin savings and loan bank came under investigation for being a fraudulent Ponzi scheme.

Now, following these controversies, some of its leading supporters have launched a foundation designed to rehabilitate the reputation of the fledging online "currency".

The Bitcoin Foundation is modelled on the Linux Foundation, the non-profit group that promotes the popular open source operating system. Its purpose is clear: to attempt to restore faith in a system bedevilled by a reputation for fraud and criminality.

The most recent episode saw thieves with a Russian IP address raid Bitfloor – a US online trading floor for the currency, stealing $250,000-worth of Bitcoins.

First proposed by an online cryptographer who styled himself "Satoshi Nakamoto" – a real identity has never been established – it was initially adopted by a small group of cyber-utopians, including Gavin Andresen, a US computer code-writer and one of the figures behind the new foundation.

While individual units of the currency are minted – or "mined" in Bitcoin's terminology – by a complex system, most of those who use Bitcoins purchase them by exchanging them for conventional currency.

However, fraudsters have developed systems for quickly "minting" currency that have undermined it while other criminal enterprises have been quick to see the advantages of the system. In 2011, the US Senate called for Bitcoin to be investigated for its links to tax evasion and money-laundering.

A statement from the foundation last week explained the problems Bitcoin had encountered, and how it would attempt to solve them. It said: "As the Bitcoin economy has evolved, we have all noticed barriers to its widespread adoption – [programmes] that attempt to undermine the network, hackers that threaten wallets, and an undeserved reputation stirred by ignorance and inaccurate reporting.

He also alluded to the fact that some governments are far from delighted with the prospect of an online alternative to state-issued currencies. "We occasionally hear threatening statements from government representatives that don't seem to understand the law, much less how great Bitcoins are for the world.

… There are legal questions to be answered about Bitcoins, different ones in different jurisdictions."

Perhaps inevitably, given its online context, the currency also fuelled a speculative bubble and subsequent collapse, seeing its value after launch peak at nearly $30 in June 2011 before crashing to $2 late last year.

So given the problems, why would anyone want Bitcoins? One answer was supplied in a recent article on the currency in the Economist that described transactions on a shady website known as Silk Road – a "sort of eBay for drugs hidden in a dark corner of the web" – which saw, according to the magazine's best estimate, Bitcoin transactions to the value of almost $2m (£1.24m) a month.